Merger of Pepco, BGE gets shakier Utilities freeze hiring, training needed for transition

The beleaguered merger of Baltimore Gas and Electric Co. with a Washington utility has become more uncertain, with announcements to employees of a freeze on hiring and employee training necessary for the $3 billion marriage.

Friday's memorandum -- coming two days after a court decision delaying resolution of a labor union challenge to the merger of BGE and Potomac Electric Power Co. -- was the latest and one of the most significant signs that the corporate marriage might not occur.


It was not the first time the companies had taken such an action or implied that the plan could be on the rocks.

In February, when it became apparent that BGE and Pepco would not meet a March 31 target date for their merger, similar hiring and training activities for Constellation Energy Corp., as the new company would be known, were halted.


Hiring and training resumed in early May, however, after the companies obtained key regulatory approvals from the federal government and the Maryland Public Service Commission, which consented to the merger with conditions.

Baltimore County Circuit Judge James T. Smith Jr. said Wednesday that he would wait until July 28 to decide whether the court or -- as the companies prefer -- state regulators should settle a labor union challenge to the merger by the International Brotherhood of Electrical Workers, which says the merger fails to serve the public's interest.

Smith said in court that he was inclined to rule on the challenge by the union, which represents Pepco employees, despite arguments by BGE and Pepco that the PSC should decide.

An attorney for the utilities said PSC involvement was "absolutely essential" for the merger to proceed. Sending the case to the commission wouldn't guarantee satisfaction for BGE and Pepco, but regulators more familiar with the merger might move more quickly than the court.

"Because of the judge's decision, it doesn't make sense for us to move forward with the employee selection process," Arthur J. Slusark, a BGE spokesman, said yesterday. "We said that unless the case is reconsidered by the commission, then there enters a degree of uncertainty over how long the merger would take. As a public company, uncertainty is something you try to avoid."

Attorneys for BGE and Pepco are expected to file papers with the court this week restating the utilities' position.

The companies are seeking PSC involvement because of the likelihood that the commission would be more lenient, especially since Gov. Parris N. Glendening has come out strongly in favor of the merger.

"I think it's crucial that we all recognize that in the world today, utility mergers and industry consolidation is a reality," Glendening said in mid-April. "To be competitive, this merger must move ahead. We do not want to put Maryland-based companies at a disadvantage."


The governor is expected to reaffirm that support early this week, state government officials said. The governor's office did not return a telephone call yesterday.

Constellation Energy would be the nation's ninth-largest company of its kind, with $15.3 billion in assets and 1.8 million electric customers.

In mid-April, the two companies said that unless state regulators rescinded a condition for approval that would lower electric rates by $56 million a year, the merger could not proceed.

Since then, the PSC has said it would lower the rate reduction to $47.5 million a year because of a "computational error" by the commission. BGE and Pepco want a $26 million decrease and other concessions.

"We're not posturing," Slusark said. "For the merger to move forward, the case before the court needs to be reconsidered by the Public Service Commission, and there needs to be a more equitable sharing of merger savings between customers and shareholders."

Pub Date: 7/13/97